Can Enhancing the Benefits of Formalization Induce Informal Firms to Become Formal? Experimental Evidence from Benin
Governments around the world have introduced reforms to attempt to make it easier for informal firms to formalize. However, most informal firms have not gone on to become formal, especially when tax registration is involved. A randomized experiment...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/579081480451260134/Can-enhancing-the-benefits-of-formalization-induce-informal-firms-to-become-formal-experimental-evidence-from-Benin http://hdl.handle.net/10986/25704 |
| Summary: | Governments around the world have
introduced reforms to attempt to make it easier for informal
firms to formalize. However, most informal firms have not
gone on to become formal, especially when tax registration
is involved. A randomized experiment based around the
introduction of the entreprenant legal status in Benin is
used to provide evidence from an African context on the
willingness of informal firms to register after introducing
a simple, free registration process, and to test the
effectiveness of supplementary efforts to enhance the
presumed benefits of formalization by facilitating its links
to government training programs, support to open bank
accounts, and tax mediation services. Few firms register
when just given information about the new regime, but 9.6
percentage points more register when they were visited in
person and the benefits were explained. The full package of
supplementary efforts boosts the impact on the formalization
rate to 16.3 percentage points, demonstrating that enhancing
the benefits of formalization does induce more firms to
formalize. Firms that are larger, and that look more like
formal firms to begin with, are more likely to formalize,
providing guidance for better targeting of such policies.
However, formalization appears to offer limited benefits to
the firms, and the costs of personalized assistance are
high, suggesting that such enhanced formalization efforts
are unlikely to pass cost-benefit tests. |
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